FHA Down Payment Facts and Information
FHA home loans are characterized as "affordable" primarily because FHA lenders only require that you put down 3.5% of the purchase price as your down payment. That alone has helped millions of American's buy a home with out having to empty their pockets!
When a consumer looks to purchase a home and is interested in FHA financing - the most attractive feature may be the low down payment option. FHA currently requires a minimum of 3.5% however may be increasing the down payment to a minimum of 5% in the near future. The borrower(s) must have at least $500 of their own money and the rest of the down payment can be a "gift" from a direct family member. Naturally, just like any other "Gift" used for Real Estate - the funds must be sourced (shown where they came from) and seasoned (length of time to which the gift as been in the possession of he buyers) for at least 60 days and a "Gift Letter" is to be included stating that the money is considered a gift and not to be repaid back at any time. If the money used for down payment is not a "gift" then they must obviously be able to source and season the down payment money being used for at least 60 days as well.
Typically, when you enter into a legal contract to purchase a home, the seller's attorney usually holds some portion of the down payment as a "deposit" in an escrow account and the remaining portion of the down payment will be paid at closing using certified funds. This is to show "Good Faith" and intent on actually purchasing the property. Although it is not required, the Seller has the option to not accept your offer and additionally may not sign the contract to sell you the property.
So, if you are looking to obtain an FHA loan to purchase a property, you must be able and willing to put something down on the contract in good faith as well as be able to come up with 3.5% total funds as a minimum down payment in order to accomplish this transaction. Of course you can put more then 3.5% down - that just reduces your overall loan amount and the amount of UFMIP (Up Front Mortgage Insurance Premium) that is applicable since that figure is based on your total borrowed money.